A standards watchdog has criticised a council at the centre of a row over a planned pay-off to a senior official.
The Accounts Commission for Scotland has examined East Lothian Council.
The report, carried out before May's elections, said the local authority lacked both clear leadership and strategic focus.
Council officials recently announced that chief executive John Lindsay had resigned after causing controversy when he helped to devise his own pay-off.
Accounts Commission deputy chair Isabelle Low said that his departure and the establishment of an SNP and Liberal Democrat coalition to replace Labour had given the council an opportunity to change.
New council leader Dave Berry said the authority fully accepted the need to improve leadership, strategic focus and staff motivation.
"East Lothian Council has so far made limited progress in establishing best value for its local population"
He said: "Even before we formed the new administration of East Lothian Council, my colleagues and I were convinced that a number of changes were needed to make the council more responsive to the people it serves.
"This may be a critical report but it does help point the new administration in a clear direction for change."
The Accounts Commission report on best value and community planning at East Lothian council stated elected members and senior officers had not provided "clear leadership and strategic focus".
It added that the authority had no formal financial strategy in place and that the council lacked a systematic approach to the management of its assets which, on 31 March last year, amounted to more than £437m.
More transparent
The report also revealed that relationships between senior officials and councillors were close, leading to much of the council's business being conducted in private.
It said this informal approach to decision-making meant there was a lack of openness and transparency.
The report said: "While there are examples of successful service delivery, council services perform just below the Scottish average."
The Accounts Commission said the council should immediately make decision-making more open and transparent.
It also called for more robust and effective scrutiny arrangements and for more effective support and training for councillors.
Ms Low said: "East Lothian Council has so far made limited progress in establishing best value for its local population, which is of particular concern considering its advantages.
Redundancy payment
"And its lack of openness and lack of leadership have not served it well.
"However, with significant changes in political leadership since the May 2007 elections and plans for a review of senior management with the departure of the chief executive, the council now has a very good opportunity to introduce a programme of change and development to achieve best value."
The council announced in August that chief executive John Lindsay had resigned.
He had previously caused controversy after he helped to award himself a £304,000 pay-off - made up of a one-off redundancy payment of £149,000 and a retirement lump sum of £155,000.
After the row, Mr Lindsay said he was no longer volunteering to be made redundant.
In August, the council overturned the decision to make the redundancy payment after accepting a legal report that said any such payment would be unlawful.
Mr Lindsay will receive his retirement and legal entitlements.
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